MFA Submits Letter to IRS on Proposed Rules on Dividend Equivalent Payments

April 06, 2012

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Topics: Internal Revenue Service IRS, dividend equivalent, tax avoidance, market participants, contractual representations, undue market disruption, swaps, delta-one instruments, customized index, derivatives, equity linked derivatives markets, in connection with standard, in the market, crossing transactions, short-term trades, high-frequency trading, gross witholding, cascading witholding taxes, special dividends, witholding agent, FATCA, specified notional principal contracts, SNPC, outstanding positions, dividend equivalent payments, abusive practices, non-U.S. persons, out-of-the-money, equity-linked swaps, options, futures, underlying security, strike price, dividend payment, dividend swaps, long-party, short-party, future dividend flow, anti-abuse rule, delta-one, International Swaps and Dealers Association, ISDA, delta, delta one instrument, non-delta one instrument, 90-Day Rule, retested, market forces, broad-based indices, market sector, credit, leverage, trading strategies, recognized independent index publisher, options contracts, proprietary index, preferred stock, common stock, illiquid securities, derivatives transactions, private funds, public float, hedge, synthetic exposure, offsetting position, individual trade determinations, investment algorithms, compliance restrictions, long equity swap, investment fund, single strategy fund, multi-strategy fund, average daily trading volume, ADTV, public float test, Bloomberg, direct or indirect "cross", crossing, full notional amount, internal tax review system, real-time identification of offsetting positions, 30 day liquidity, Department of the Treasury, overwitholding, extraordinary dividend, Options Clearing Corporation, OCC, ordinary divident, special dividend, OTC option, options market,
From: MFA, Richard Baker


Internal Revenue Service

MFA submitted a comment letter to the Internal Revenue Service on the IRS proposed rules under Section 871(m) of the Tax Code. In our letter, we encouraged IRS to amend the proposal to provide more certainty for market participants while also addressing the concerns about inappropriate tax avoidance the HIRE Act and the proposed rules are intended to address. Specifically, we encouraged the IRS to, among other things: (1) extend the period of the temporary regulations to avoid unnecessary market disruption to existing contracts; (2) narrow the scope of contracts covered by the rule to address transactions that raise inappropriate tax avoidance concerns, while avoiding unintended consequences on the equity-linked derivatives market; (3) develop an in connection with standard as part of the restrictions on derivative counterparties trading the underlying security in the market; (4) eliminate the so-called 90-day rule, which would create significant uncertainty and unduly inhibit many legitimate short-term trading strategies; and (5) provide clarification on a number of issues to reduce uncertainty in implementation.